What’s Up!

Types of Unit Trusts
Unit trusts are considered good instruments for medium- to long-term financial plans. However, it is important that you choose the appropriate fund depending on your risk profile and investment objectives. Listed here are the types of unit trusts currently available in the market:

Income funds: Invest in fixed income securities and huge dividend-yielding shares with the view to pay out most of the returns. Suitable for investors seeking income and some level of growth at low risks.

Capital growth funds: Invest primarily in shares with the view to maximise capital growth over the long-term (i.e. through a higher unit price). Appeal to high-risk investors keen on capital accumulation.

Aggressive growth funds: Similar to capital growth funds but with investments in aggressive, fast track shares that promise high returns – with higher risk. Generally suitable for high-risk investors.

Balanced funds: Have three objectives: income, moderate capital appreciation and capital preservation. Invest across a broad spread of asset categories including shares, fixed income securities and cash. Well-diversified and suitable for investors looking for reasonably safe investments where the risks are lower and which produce average returns.

Index funds: Invest in a basket of shares that tracks a selected stock market index.
Bond funds: Invest only in fixed income securities such as bonds and short-term money-market instruments. All bond funds are subject to interest rate risk and most to credit or default risk of the issuers.

Money market funds: Invest only in short-term money market instruments such as treasury bills, negotiable certificates of deposit and bankers acceptances, with maturity of less than 90 days. Since the funds invest in money market instruments, the returns, while small, are generally more attractive compared to saving deposits. Good for investors looking for liquidity, and perhaps a temporary place to park their funds before they commit to other funds.

Islamic funds: Managed according to Syariah principles; invest in shares and fixed income securities which excludes non-halal shares and interest-bearing money market instruments.

State funds: Managed by the state development corporations for investors from the respective states.

Who Else Wants To Know How Experts Deal With Losing Trades?

Provided By Trading Secrets Revealed

At some point in your trading career you will be faced with a string of losses that will bring your confidence to an all-time low. Every trader hits this point at least once, and some will visit it several times. Here are some tips on how to deal with this situation.

First, I recommend that you take a break from trading. A one week break will allow you to relax and regroup. It is impossible to trade effectively when you are under extreme stress. When you have decompressed and returned to a more positive frame of mind you will be able to reaffirm your goals and think clearly when you come back to your trading room.

You should pay careful attention to your mindset. If you do not have a positive approach to your trading the best tools and strategies can be at your disposal, but they will not give you the results you want. There are a variety of meditation and visualization techniques that can help you achieve a positive mental outlook. Learn about them, and use the ones that work best for you. Once you can effectively see yourself an up-and-coming trader, sure to meet and exceed all your trading goals, you are more than half way there. Remember, your mind is the greatest asset you posses.

Next, consider your trading experience up to now. It makes sense to take stock of your trading, and ask yourself some important questions. The most important one is “Have I been following my trading plan?” Often failure in the market is caused by not following your plan. See where you departed from your plan, and consider what you need to do to not make the same mistakes. This kind of analysis will give you valuable insight into your trading, and help you attain much greater success in the future.

With your consideration of your trading past in hand, make whatever adjustments you need to your trading plan. Your trading plan should define your approach to trading, and should give you a course of action for any circumstance that might arise. Without a comprehensive trading plan, it is very difficult to be a successful trader.

Lastly, when you begin trading again, follow your plan flawlessly. You need to acknowledge the fact that this is hard to do. But commit to doing it, be disciplined. Ultimately, undisciplined behavior will be punished by the market, either by direct losses or by the loss of profits you could have made. However, the market can confuse this issue with random reinforcement. Random reinforcement is the market’s tendency to reward bad behaviour from time to time. This is one of the reasons why it can take so long for traders to understand the market. However, even with random reinforcement, it makes no sense to have a system if you are not going to follow it.

Given that it is so hard to follow a system, you should take some time to reward yourself for doing this difficult task. Celebrate even if you have more losses than winning trades. Remember, losses are just as important as winning trades, they are a part of any system, and a sign that you are following the market wisdom of cutting your losses short.

When you are up and trading again, you may want to consider finding yourself a coach. Even I have a coach. In fact, I have coaches in all areas of my life. I learnt the importance of mentors from Tiger Woods. Even he has a coach. Now why does best golfer in the world have a coach? It certainly isn’t because his coach plays a better round of golf than him. No, it’s because a coach can see things from a different view point. A good coach can be vital in helping you along your trading journey.

It isn’t easy to pick yourself up and start trading again after a long series of losses. But with these techniques, you should find yourself trading again, and making money. With the right approach and a well-designed trading system, it’s only a matter of time before you become a successful trader again.

This article has been extracted from David Jenyns’ Trading Secrets Revealed Course

Counting on the nest egg

By SHAHANAAZ HABIB

With people living longer, marrying and having children later and not saving enough, facing retirement is a challenge. While there is growing awareness about the need to plan, less than 5% are prepared for retirement and fail to take into consideration inflation rates and rising medical costs.

IN 1981, when Azman graduated, he got a job in KL which paid him RM1,800 a month. He bought an imported Mazda at RM17,000 and months later he put down money on a RM78,000 single-storey terrace house.

Today, 25 years later, Azman’s daughter has just finished university. Her starting pay is RM1,800, just like her father’s two and a half decades ago.

Long road ahead: With the life expectancy of men at 72 and women at 76, most people have a good 20 years to live after retirement.
But unlike her father’s time, imported cars cost over RM100,000 today. So Latifah has opted to buy a Proton for RM45,000 (more than double what her dad paid for his first car).

While her father could afford to buy a house early in his career, Latifah can’t. Houses in KL these days cost at least RM200,000, so she has to work for a few years first before she can own one.

Compared to 25 years ago, the prices of goods, food, petrol and electricity have all gone up. Understandably, it’s an uphill task for Latifah to save on her RM1,800 salary, since the purchasing power of her salary is much lower than her father’s back in the 1980s.

It is a fact that wages have not moved in tandem with the rise of the cost of living and inflation. That trend is expected to continue.

And if people do not start planning early for their retirement, they are going to find themselves in a spot after they turn 55.

Today, three meals cost you RM20 but in 20 years time – with an inflation rate of 6% a year – you will need RM64 per day for the three meals, estimates financial consultant Hazel Ong Archibald of CIMB Wealth Advisors (see Chart 1). The government puts inflation rate at 3.2% to 4.8% but Ong says in urban areas, that figure is about 6%.

So while the RM500,000 in your EPF or bank account at retirement might look good on paper, she says, if you do not invest that money to make it grow at a rate higher than the inflation rate, 20 years later, it would be worth only RM145,053 in purchasing power!

While there is more awareness about retirement planning these days, particularly in the urban areas, in reality this does not often translate into preparedness.

Why?

“Because it is more pleasurable to spend than to save,” opines Ong.

People understand – at head level – the need to plan and save, she says, but at heart level, emotions rule and instant gratification wins the battle.

“I wanted to persuade a friend to save for the future but she kept saying she had no money but then later I saw she could sign up RM3,000 and RM5,000 for some slimming packages!”

Reality hits when people find that they cannot afford to retire because they had not seriously put aside the money early on in life.

Ng: ‘Less than 5% are prepared for retirement’
“Less than 5% are prepared for retirement,” estimates Life Insurance Association of Malaysia (LIAM) president Ng Lian Lau.

He says those in their 20s think they are too young to think about retirement, while those in their 30s and 40s tend to believe they are doing enough because they have their EPF savings, and those who are 55 feel it is just too late for them.

And the truth is at 55, most people cannot afford to retire.

“People are living longer, life expectancy for women is 76 years. For men it’s 72. With this kind of longevity, people have got more than 20 years after retirement. 60 would be a more ideal retirement age,” he says.

People are marrying later too, points out Ong.

Which means they are having children later in life. If a person has a kid at the age of 35 and retires at 55, the odds are that his child at 20 would probably still be at university or college and his education require financing.

On average, the Malaysian household spent 5.7% on education last year. With the cost of education rising by 6% each year, this is expected to climb steadily.

While parents might buy an education insurance plan for their children, Ong has found that 90% of the time the amount is insufficient. More often than not, parents are willing to give up “everything”, including their own retirement fund for the kids. Which leaves them in a vulnerable position in their old age, unless of course their children provide for them.

As for life insurance, only 40% of Malaysians are covered. Ng says this is a small number compared to 100% in Singapore, 80% in the United States and 400% in Japan (where one person has four policies on average).

Ong: ‘Inflation rate in urban areas is 6%’
And even if one has a life policy as well as savings from the EPF, people should still worry about retirement. This is because without a new source of income, that money would run out. This is especially so if one runs into health problems which is common when people grow older.

“Medical inflation is easily 15% each year. And this could really eat into the savings,” warns Prudential Assurance Malaysia Bhd CEO Tan Kar Hor.

Tan likens the medical bill as a “hole” which if not plugged would leak away one’s entire retirement and savings.

“It’s only a question of how the big the hole is,” he says.

So parliamentary secretary to the Finance Ministry Datuk Seri Dr Hilmi Yahaya’s announcement on Thursday that amendments to the Employees Provident Fund Act would allow contributors to withdraw money to buy insurance for critical illness for themselves and their family is welcome news. The amendment Bill was passed in Dewan Negara that same day.

So how much would one need for retirement?

Experts say this depends on the individual and his lifestyle. And how much he is willing to reduce consumption – to eat out less often, buy fewer things, live in a smaller house, drive less, drive a smaller car and travel less.

The rule of the thumb, says Ng, is managing on 60% of your last drawn pay.

For Ong, it’s 70% of one’s current lifestyle. If a family in Kuala Lumpur with two kids and two cars needs RM5,000 today, at retirement, expenses should go down to RM3,500.

Even based on this calculation, one would need RM747,000 if one were to live for 25 years after retirement, and RM806,200 for the next 30 years, factoring in the inflation and interest rates.

Going by statistics revealed in EPF’s 2005 annual report, about 90% of EPF contributors have less than RM100,000 in their accounts. So sole dependence on one’s EPF savings as a safety net is not good enough.

Assuming that one can live on RM1,000 a month, to survive for 25 years, one would still need a substantial RM300,000 and for 35 years, RM420,000.

Bank Negara’s Counselling and Debt Management Agency (AKPK) CEO Mohamed Akwal Sultan reckons a person should not start purchasing big assets like property or a house late in life as the danger is that once they have retired they may not be able to meet the instalment payment on it.

“When you are in your late 40s, you should be winding down and not committing to high expenses to buy big things,” he says.

AKPK has dealt with a number of cases where retirees have had banks auction off their houses because they could not meet the monthly loan payment.

There is also the problem of credit card temptation. Ng notes a worrying trend that more and more younger people are becoming bankrupt as they are spending “tomorrow’s money”. Which basically means these people are not saving or building their retirement nest.

Ideally, Ong says, people should start saving from the time of conception; that way would be able to enjoy the magic of the compounding effect (see Chart 2).

Prudential’s Tan says a noticeable trend is that while the younger generation is prepared to invest in new financial instruments, the older generation gravitates towards fixed deposits.

“That is very risky because you would not be able to accumulate enough because the interest rates can’t meet the inflationary rate and your money is getting smaller,” he says.

He believes given the current life span, it would do retirees good to be more aggressive in their investment.

“In investing, you should not be looking at the date of retirement but rather the date of potential death which is probably still another 21 years away after retirement,” he says.

He recommends that people only keep about six months of their monthly expenses in the savings and FDs and put the rest in investment products that generate more income than the inflation rate.

Ng believes a good private pension would help people in their retirement years. In developed countries, money put into savings for retirement is not taxable, neither is the profit from that investment.

“When you retire, you can’t take the money out in a lump sum either or you’d have to pay tax on it. This will force you to withdraw your money on a regular monthly basis for retirement because that’s tax free,” he adds.

Singapore has such a scheme, the voluntary Supplementary Retirement Scheme, which complements the Central Provident Fund (CPF). Such a scheme has not taken off in Malaysia for a number of reasons, says Ng.

It would be a loss of revenue to the Government because people would not be paying taxes on money put aside for retirement. It would benefit only the rich and middle income group as the poor might not be able to afford it, he adds.

“Perhaps it hasn’t taken off too because the Malaysian economy is pretty dependent on consumer spending. And the Government wants you to spend,” he adds.

Ng says there should also be an asset liquidation law in the country. It is puzzling that there are all sorts of incentives for asset accumulation, he says, but none for liquidation.

An example of asset liquidation would be to reverse mortgage your house to the bank in return for a guaranteed monthly income until you die.

The asset would at the end of the day belong to the bank or insurance company. But in the meantime, the person has the right to continue to live in the house until death and get a monthly income too.

“If they outlive the value of the house, the bank loses,” he says.

As our population ages and life expectancy increases, more thought must be given by both individuals and the Government on how to develop a culture of planning and saving for one’s retirement.

Philosophy of the Stock Market

Once upon a time in a village, a man appeared who announced to the villagers that he would buy monkeys for Rm 10. The villagers, seeing that there were many monkeys in the forest, went out and started catching them.

The man bought thousands at Rm 10 and as supply started to diminish and villagers started to stop their efforts, he announced that now he would buy them at Rm 20.

This renewed the efforts of the villagers and they started catching monkeys again. Soon, the supply diminished even further and people started going back to their farms.

The offer rate increased to Rm 25 and the supply of monkeys became so that it was an effort to even see a monkey, let alone catch it.

The man now announced that he would buy monkeys at Rm 50. However, since he had to go to the city on some business, his assistant would now buy on behalf of the man.

In the absence of the man, the assistant told the villagers, “Look at all the monkeys in the big cage that the man has collected. I will sell them to you at Rm 35 and when the man comes back, you can sell them to him for Rm 50 each.”

The villagers queued up with all their savings to buy the monkeys.

After that, neither the assistant nor the businessman could be found anywhere but the monkeys were everywhere!

__._,_.___

Not too long ago we read in the local papers (Malaysia) that majority people lose money investing in Unit Trust. But things will start to change when the Deputy PM of Malaysia say otherwise in the New Straits Times today. Append is the featured news :

Put your money in unit trusts, says Najib
27 Mar 2007
Hamidah Atan

——————————————————————————–
PUTRAJAYA: With the economy growing steadily, this is the best time to invest in unit trusts, Deputy Prime Minister Datuk Seri Najib Razak said yesterday.

“It is an investment with minimum risk, and economic expansion and the good performance of companies will result in higher dividends for investors.

“I am not saying we should not invest in the share market because that is the individual’s decision, but for small-time players, it is better that they invest in unit trusts.”

Najib was speaking after laun- ching the Perbadanan Nasional Bhd (PNB) 2007 investment quiz at the Putrajaya Corporation complex here.

Also present were PNB chairman Tan Sri Ahmad Sarji Abdul Hamid and its president and chief executive officer, Tan Sri Hamad Kama Piah Che Othman.

Najib said the economy was getting stronger and more stable.

“Last year’s gross domestic product (GDP) increased to 5.9 per cent from 5.2 per cent the previous year.

“The country’s GDP is expected to remain firm at six per cent while the inflation rate is expected to go down to three per cent this year.”

The Kuala Lumpur Composite Index reached 1,283.47 points on Feb 23, its highest in 10 years.

“All this clearly shows how strong our economy is. We should grab the opportunity to strategise our financial planning so we will not be left behind in making a positive and meaningful investment.”

Najib also touched on the need for public awareness programmes to teach credit card holders how to manage their personal finances and not spend beyond their means.

In 2005, he said, 16,000 bankruptcy cases were filed, of which eight per cent were against those below the age of 30.

High-income earners who overspent with their credit cards could also land themselves in trouble.

“The more you educate the people, the better. Some of the financial institutions can also sponsor similar programmes.”

Najib said it was normal for banks or financial institutions to offer credit card facilities but it was up to the individual to use them wisely.

“Credit cards are like double-edged swords, like the Internet. It is a facility given but if we are not smart enough to use it, then it can become a burden to us.”

Retirement Planning:

Optimize Portfolio via CAPM

Written by Administrator 0f Bizfun.cc

Asset allocation with maximum return and minimum risk, theory published by William F. Sharpe (1964) named Capital Asset Pricing Model (CAPM). CAPM extended Harry Markowitz’s portfolio theory to introduce the notions of systematic and specific risk. For his work on CAPM, Sharpe shared the 1990 Nobel Prize in Economics with Harry Markowitz and Merton Miller.

CAPM considers a simplified world where:

There are no taxes or transaction costs.
All investors have identical investment horizons.
All investors have identical opinions about expected returns, volatilities and correlations of available investments.

Portfolio theory provides a broad context for understanding the interactions of systematic risk and reward. It has profoundly shaped how institutional portfolios are managed, and motivated the use of passive investment management techniques. The mathematics of portfolio theory is used extensively in financial risk management and was a theoretical precursor for today’s value-at-risk measures.

You can plan and optimize your portfolio allocation using CAPM at Myshareonline. It computes capital investment of $100,000 as market value and using Bursa’s stock “Beta” and current stock price to get Optimum Portfolio. It lists you the quantity of share allocation in order to achieve greater return with minimum risk.

The output is amazing with Risk/Reward graph presented. For best result, you are recommended to enter at least six counters but two are acceptable to let the program run. The portfolio risk/reward in blue square on graph is what you are looking for. I run several tests with result of risk valuing from 1%-3% vs. reward of around 10% and more. In practical, you may hold your position to maximize profit if trend intact.

Glossary

Sharpe, William F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk, Journal of Finance, 19 (3), 425-442.

Tobin, James (1958). Liquidity preference as behavior towards risk, The Review of Economic Studies, 25, 65-86.

Treynor, Jack (1961). Towards a theory of market value of risky assets, unpublished manuscript.

Beta describes the sensitivity of an instrument or portfolio to broad market movements. The stock market (represented by an index) is assigned a beta of 1.0. By comparison, a portfolio (or instrument) which has a beta of 0.5 will tend to participate in broad market moves, but only half as much as the market overall. A portfolio (or instrument) with a beta of 2.0 will tend to benefit or suffer from broad market moves twice as much as the market overall.

How To Create Your Own Emergency Fund? by Cornie Herring

Do unexpected car repairs, quarterly insurance payments or unexpected medical bills find you hard pressed to squeeze even one more dollar out of an already stretched monthly budget? These are inevitable expenses and sometimes can put you under a stress condition when you need the cash to pay for these emergencies and unexpected expenses. But if you learn to budget for these emergencies events and save in advance, you will be at a better position to handle them.

Like most of Americans, you may stretch your income to cover the regular monthly expenses, and always choose to ignore or not to think about the brakes that are getting spongy or the plumbing that’s beginning to make strange noises. And you end up a surge on your monthly expenses when the brakes wear off and the plumbing break out.

Planning and saving for those events can help prevent an ordinary life from turning into a crisis and can also cut down dependence on credit cards. Not having savings is a major reason people get into debt.

Here are some steps to help you get started to plan for your emergency fund, the “Saving” fund which will help you prevent financial disaster.

1. Identify your irregular expenses

Analyze your pass credit card statement and checking account registers to identify your irregular expenses occur throughout the year. Examples of these irregular expenses are property taxes, insurance premiums, vacations, car tune-ups, holidays and birthdays. List down in a piece of paper all the expenses which are not spent in monthly basis.

2. Write the anticipated amount on the calendar

In most of cases such as insurance premium and property taxes, you will know when the expenses are due to occur. And for those unknown cases such as car repair and plumping repair cost, try to anticipate their expenses and list them somewhat earlier than you actually expect them to come up. Be sure to update your calendar as you discover more expenses.

3. Plan-in the non-monthly expenses into your monthly spending

Based on the foreseen amount and anticipated amount that are captured on your calendar, plan ahead your non-monthly expenses into your monthly spending. For example, you know that your car insurance is going to due on May, set aside small amount of your money for this purpose starting on February. And when May rolls around you can transfer the expense to your spending plan and have money available to pay it. Setting aside even a few dollars each month for foreseeable expenses can prevent larger money woes ahead.

Sometimes, you may find it hard to set aside some extra money from your monthly income; but remember, repairing your car or paying your insurance is not optional expenses and you need to spend it soon or later. So you need to find a way to reduce your monthly expenses so that some money can set aside for emergency fund. You may need to track your spending; then, reduce or cut the optional expenses such as entertainment, dinner at restaurant and other impulse purchase, the money save from those optional expense can be put into your emergency fund.

In Summary

One of the mistakes people make when trying to get their finances under control is not having an emergency fund on their savings account. The problem is that if you don’t have money set aside for those unavoidable bills, you inevitably end up adding to your credit card balance to cover the difference.

The bottom line is to start today. It may be discouraging at first if you find that you don’t have enough money to fully fund your emergency fund, but you’ll begin to succeed the minute you start the process.